Sens. Mark Warner, D-VA, and Bob Corker, R-TN, are working on legislation that would create a new federal mortgage guarantor, replacing Fannie Mae and Freddie Mac, according to trade and legislative officials familiar with the matter. However, as Inside The GSEs went to press this week, little was known in terms of specifics. “This would be a federal insurance entity, involving insurance wraps” said one trade group official. “It would involve a tiered risk-sharing system.”
Progressives and other “Dump DeMarco” advocates are looking to a “Plan B” to replace the current, long-time acting head of the Federal Housing Finance Agency should the White House’s controversial pick find his nomination significantly prolonged or even stalled in the Senate, say industry observers. President Obama’s long-awaited action last month to nominate Rep. Mel Watt, D-NC, to be the FHFA’s new, permanent director pleased Congressional Democrats who have been longing to oust Edward DeMarco, a career civil servant who has been the Finance Agency’s acting director since September 2009. However, the brewing IRS scandal may further embolden already less-than-pleased Senate Republicans to slow walk Watt’s confirmation hearing or even block the nomination altogether.
The 12 Federal Home Loan Banks should expect increased “regulatory attention” going forward to ensure their GSE funding advantage remains focused on their mission, the acting head of the Federal Housing Finance Agency told bank directors and executives last week. During a speech at the annual Federal Home Loan Bank Directors Conference in Washington, DC, FHFA Acting Director Edward DeMarco noted that as advances and mortgage assets declined during the economic downturn, FHLBank balance sheets became less “mission oriented.” “Our focus on mission assets is not only an exercise in adhering to the essential mission for which Congress designed the system; it stems from safety and soundness concerns based on recent experience,” said DeMarco.
The watchdog agency charged with overseeing the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks said it plans to remain “active on the law enforcement front.” In its semi-annual report to Congress issued this week, the Federal Housing Finance Agency’s Office of Inspector General gave a tally of its accomplishments for the six-month period ending March 31, noting that it issued 13 audit, evaluation survey and white paper reports, and participated in several criminal and civil investigations.
Speculators have been driving up the price of Fannie Mae and Freddie Mac junior preferred stock, hoping that given the GSE’s rapidly improving fortunes they could make a killing down the road. One hedge fund official told Inside The GSEs that Fannie junior preferred shares that had an original face value of $50 are trading in the secondary market for $8 to $9 a unit. Stock originally priced at $25 can be had for $5 and change. Fannie common stock is now trading at $2.20 per share compared to a 52-week low of just 9 cents. Fannie and Freddie recently reported record quarterly profits of $63 billion, a large chunk of it tied to the recapture of deferred tax assets. But on a pure operating basis – minus the DTA – their combined earnings are in the range of $12 billion, which is almost $50 billion annualized.
The director of the Federal Housing Finance Agency would be able to review and revise the take-home pay of Fannie Mae, Freddie Mac and Federal Home Loan Bank executives should the director determine that a senior official’s compensation is “not reasonable or comparable” with the earnings of counterparts in similar businesses, under newly revised agency rule. An interim final rule, published by the FHFA in the May 14 Federal Register authorizes and clarifies the FHFA director’s authority to review and withhold executive compensation at Fannie, Freddie and the 12 FHLBanks in particular. “In view of FHFA’s statutory obligation to prohibit compensation to any executive officer that is not reasonable and comparable, prior review and non-objection rather than review after-the-fact can help set expectations and avoid the need for later remedial action,” explained the Finance Agency.
Banks and thrifts continued to generate very strong earnings from their mortgage banking operations during the first quarter of 2013, despite a slowdown in originations and loan sales. Banks and thrifts reported a total of $7.704 billion in mortgage banking income during the first three months of 2013, according to a new Inside Mortgage Trends analysis of recently released call-report data. That was up 15.5 percent from the previous quarter, and the early 2013 earnings fell just ... [Includes one data chart]
A New York federal judge has allowed the Justice Department to proceed with its civil fraud lawsuit against Bank of America in connection with the packaging and sale of mortgage-backed securities to Fannie Mae and Freddie Mac, but not before dismissing a significant portion of the government’s claim. U.S. District Judge Jed Rakoff dismissed claims for damages and penalties under the False Claims Act in an expedited ruling two weeks ago. In October 2012, the government filed suit against BofA, as successor to Countrywide, alleging BofA inherited and continued to operate Countrywide’s loan program known as the “Hustle.”
Although table-funding transactions fell slightly in terms of market share in the first quarter, prospects are looking up for mortgage brokers. According to the Bureau of Labor Statistics, 78,500 men and women were employed as full-time mortgage brokers in March, the highest reading since the summer of 2008, when the housing and mortgage markets were in a free-fall. Trade group officials who represent brokers report they are seeing more wholesalers engaged in table funding ... [Includes one data chart]
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